Hedge Fund Focus

PerTrac Study Reveals New Trends in Hedge Fund Performance

PerTrac Financial Solutions (www.pertrac.com) today released its third annual study that examines hedge fund returns, volatility and risk, based on a fund’s age and size. While previous research has confirmed the widely held belief that emerging funds tend to outperform older and larger funds, hedge fund performance in 2008 saw a partial reversal of that trend.

Meredith Jones, managing director at PerTrac, reported:

“Last year was a difficult one for hedge funds of all ages and sizes, but once again we saw younger funds outperforming older ones, confirming our findings from earlier studies.  However, when it comes to hedge fund performance as a function of fund size, we saw a reversal of the trend established from 1996 through 2007. During 2008, funds with the least assets actually performed the worst, while larger funds posted better returns.”

The study revealed that small hedge funds underperformed larger funds for the first time since beginning of study data.  Jones also indicated that there are several possible reasons why small funds underperformed their larger peers for the first time ever in 2008, such as:

• greater ability of larger hedge funds to handle redemption requests without compromising their portfolios’ performance
• stronger institutional reputation of larger hedge funds to attract hedge fund investors
• greater number of large hedge fund managers participating in the 2008 survey

By contrast, an examination of the relationship between fund age and performance revealed no surprises for 2008. One trend that continued to remain consistent is the tendency for young founds to outperform older funds - the study revealed that hedge funds with the shortest track record continued their trend of superior performance in 2008.

The new study is the latest in a growing body of research produced by PerTrac Financial Solutions for the investment community.